Innovation has always driven the World’s economy and financial markets. One of the best examples of this was the technological innovations (computers, microchips, software, automation, etc) occurring in the 80’s and 90’s which propelled the Dow Jones Industrial Average from around 1000 in 1982 to over 10,000 in 2000.

Less revered innovations that have affected financial markets include the advent of toxic “mortgage backed securities” and “credit default swaps”. While they looked good on paper and were given investment grade ratings by the incompetent credit rating agencies, these particular innovations are credited with stoking the “housing bubble” and eventual “great recession” of the late 2000’s.

The Energy Evolution is Coming:

In the next 10-20 years, I personally believe innovations in energy efficiency and alternative energies are going to have a dramatic positive effect on the world economy and financial markets.

From advances in solar, wind, tidal, nuclear, hydrogen, and geothermal energy, to improved efficiencies in the use of traditional fossil and bio fuels, the prospect of job growth and value creation within these areas is mind boggling.

The Greatest Challenge to Energy Innovation:

Unfortunately, there is one great barrier that remains to be broken in terms of bringing these exciting new energy innovations to market: the lack of funding.

Because of the extreme amount of money (capital) it takes to bring alternative energy projects to scale, venture capitalists, financial institutions, and governments are reluctant to fund new businesses. If they did, they would be exposing themselves to a huge amount of risk on various technologies that are largely unproven. It is indeed a catch 22 situation.

For example, the pharmaceutical industry has traditionally been considered a capital intensive industry when it comes creating a new product. It has been estimated to cost over $800 million in research and development costs to bring a new drug to market. In comparison, developing the country-wide distribution infrastructure to support a fleet of hydrogen powered vehicles could cost 150 times more than that ($120 billion).

Technology exists today that would almost eliminate our dependence on foreign oil, but so far, no one has developed a viable way to fund the projects on the scale that would bring them to parity (in terms of costs) with current energy technology.

With the US Government already $14.3 trillion in debt, I don’t see any new government bonds being sold in the near term to be used towards funding alternative energy products, unfortunately, this may be the only way such projects could be funded.

Another alternative might be to issue some form of blended government/corporate bond made up by a network of “volunteer” companies where the risk/rewards can be more evenly shared. But this would never work due to the public outcry of corporations getting into “bed” with the government.

One thing is for sure, before any major energy innovations or breakthroughs are brought to scale, there will need to be innovations in the way these capital intensive projects are funded.

Please leave your own ideas for funding new energy innovations in the comment section below!

Too Much Debt? Download our free Trees Full of Money Debt Snowball Calculator and see how quickly you can pay off your debt.

One Response

I completely agree with you about the future of alternative energy. However, I don’t see venture capital jumping on board right away. People use to laugh at the computer nerds of the 80’s saying that there would never be PCs but with the passion of people like Jobs and Gates we have these little marvels that we use everyday. I just think it will take time for the alternative energy people to innovate to the point where it becomes financially attractive and economical to participate. Currently solar power is almost prohibitive in price and can present negative NPVs for the investors. Humans are inventive creatures and will find cost effective ways to produce these alternative energy assets, and when that happens we will see the growth of alternative energy sky rocket. I look at Google for example, they didn’t really come around until close to the end of the tech boom and even had a hard time getting funding, but look at where they are today.